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Karnataka Class 12 Commerce Economics Chapter 8 National Income Accounting : Economics focuses on the behavior and interactions of economic agents and how economies work. Consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behavior of basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labour, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies).

Karnataka Class 12 Commerce Economics Chapter 8 National Income Accounting : Here we provide direct download links for Karnataka Class 12 Commerce Economics Chapter 8 National Income Accounting Important Notes in pdf format. Download and read well. In this article you can see Karnataka Class 12 Commerce Economics Chapter 8 National Income Accounting some sub topics. Karnataka Class 12 Commerce Economics Chapter 8 National Income Accounting included are some topics those are :

National income consists solely of services as received by ultimate consumers, whether from their material or from their human environments. A national income estimate measures the volume of commodities and services turned out during a given period counted without duplication- National Income Committee of India (1951). Gross national product at market prices is the market value of the produce before deduction of provisions for the consumption of fixed capital distributable to the factors of production supplied by the normal residents of the given country- United Nations Department of Economic Affairs

National income is a collection of goods and services reduced to a common basis by being measured in terms of money. Therefore, all the above definitions make it clear that national income is the monetary measure of-

· The net value of all products and services

· In an economy during a year

· Counted without duplication

· After allowing for depression

· Both in the public and private sector of products and services

· In consumption and capital goods sector

· The net gains from international transactions.

The five-sector circular flow model describes the operation of the economy and the linkages between the main sectors in the economy. The five-sector model is based on dividing the economy into five sectors. A sector may be defined as a part of the economy where the participants are engaged in a similar type of economy activity.

1. Individuals :

This sector consists of all individuals in the economy.

These individuals are the owners of productive resources, and the consumers in our economy.

Individuals supply factors of production (inputs) such as labour and enterprise to businesses, which they use to produce goods and services. As a reward for supply resources such as labour and enterprise to firms, individuals receive incomes – rent, wages, interest and profit

2. Businesses :

This sector consists of all the business firms engaged in the production and distribution of goods and services (apart from financial services).

It concerns all their activities involved with buying factors of production and using them to produce and sell goods and services.

Individuals and businesses are interdependent.

3. Financial institutions :

This sector consists of all those institutions that are engaged in the borrowing and lending of money, acting as the intermediaries between those who save, and borrowers of money.

Financial institutions are needed for individuals and firms to be able to undertake saving and investment. They perform the function of mobilising savings for investment.

Savings: leakage; Investment: injection

4. Government :

In Australia, this sector consists of the Commonwealth, State and local governments.

It is involved in the satisfaction of collection (community) wants.

It obtains the resources to do this through imposing taxes on the other sectors of the economy.

It uses this tax revenue to undertake various government expenditure

5. International Trade

We can see this circular flow in Figure 1. Households sell their factor services to firms (in the factor markets) and in exchange receive wages (the left hand side of the flow). In the meantime, households spend this income on goods and services (in the goods market) and in exchange receive the goods and services themselves (the right hand side of the flow). Economists call the wages plus the other forms of income, national income and give it the code ‘Y‘. Domestic consumption is given the code ‘C‘.

Not all income is spent, however. Some is saved. Savings are coded as ‘S‘. Other money is used to buy goods or services produced overseas. The money to buy these goods and services flows out of the country. It is given the code ‘M‘ for imports.

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation’s capital account or how GDP would be affected by unemployment rate.

National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time.There are four methods of measuring national income. Which method is to be used depends on the availability of data in a country and the purpose in hand.

(1) Product Method:

According to this method, the total value of final goods and services produced in a country during a year is calculated at market prices. To find out the GNP, the data of all productive activities, such as agricultural products, wood received from forests, minerals received from mines, commodities produced by industries, the contributions to production made by transport, communications, insurance companies, lawyers, doctors, teachers, etc. are collected and assessed at market prices. Only the final goods and services are included and the intermediary goods and services are left out.

(2) Income Method:

According to this method, the net income payments received by all citizens of a country in a particular year are added up, i.e., net incomes that accrue to all factors of production by way of net rents, net wages, net interest and net profits are all added together but incomes received in the form of transfer payments are not included in it. The data pertaining to income are obtained from different sources, for instance, from income tax department in respect of high income groups and in case of workers from their wage bills.

(3) Expenditure Method:

According to this method, the total expenditure incurred by the society in a particular year is added together and includes personal consumption expenditure, net domestic investment, government expenditure on goods and services, and net foreign investment. This concept is based on the assumption that national income equals national expenditure.

(4) Value Added Method:

Another method of measuring national income is the value added by industries. The difference between the value of material outputs and inputs at each stage of production is the value added. If all such differences are added up for all industries in the economy, we arrive at the gross domestic product.

The main difficulties which are involved in the measurement of national income are following :

1. Lack of statistical data :-

In the less developing countries, the accurate figures about the various sectors of economy are not available due to this we are unable to estimate the real national income of the country.

2. Lack of staff :-

There is a shortage of trained staff which may collect the statistics about the national product.

3. Public co-operation :-

Public is also not ready to provide the correct figures about the income due to the fear of income tax.

4. No account :-

Some people do not keep any proper account about their business income, so their income is not included in the national income.

5. Difficulty in assessment :-

Some goods and services value can not be assessed easily. For example the value of different Cows and Sheep’s is very difficult.

6. Problem of double counting :-

While computing the national income there is always a danger of double counting. If the care is not taken the national income is over estimated.

7. Unpaid services :-

In national income only those services are included for which the payment is made. The unpaid services are excluded.

8. Assessment of depreciation :-

The assessment of depreciation allowance, repair and replacement charges is a very difficult job.

9. Controversial issue of house rent :-

A landlord receives Rs. 1000 monthly a rent of his house. This rent will be included in the national income. If this house is purchased by the tenant. Now Rs.1000 will not be paid by the tenant. So now Rs. 1000 income of the tenant has increased. Now the controversial issue is that it should be included in the national income or not.

10. Transfer earnings :-

The transfer earnings like pensions are excluded from the national income and it feels problem.

11. Foreign payments :-

We include only net foreign balance, if we include all the sources from which foreign payment is received, it will be more difficult.

12. Direct exchange :-

In the less developing areas people exchange the commodities with the commodities and do not use the money. So the value of these goods can not be estimated.

13. Income of foreign companies :-

The income of foreign investment is not included in the national income. Because these companies send some portion of their profit to their own countries.

The value of the economy’s total output can be measured in three ways which can be seen by examining Fig. 3.1. The figure shows the flows of income and expenditure in this simple model. The two main economic agents are households and firms.

The households are the owners of factors of production, the services of which they sell to firms in exchange for income (such as rent + wages + interest + profit). We assume for simplicity that all profits to be distributed to households and not retained by the firms.

The firms use the factors of production to produce many different goods and services which they sell to households, foreigners, the government and other firms and receive in return the values of goods and services they produced. The figure also shows that the part of household income which is not spent on consumption is either saved, spent on imports or is taken in taxes by the government.

The government itself uses its tax revenue (as well as money from other sources) to finance government spending, including transfer payments (such as pension, unemployment benefit and student grants and loans). Before pro­ceeding further we want to define the terms consumption (C), investment (I) and savings (S).